The U.S. added 147,000 jobs in June, which exceeded consensus estimates for 125,000. The unemployment rate ticked down to 4.1%. And the prior two months’ growth numbers were revised up. All of that is good news.
However, a strong gain of 40,000 jobs in state and local education may be an outlier. It is June, after all, a month when schools are wrapping up for the summer break. The increase is likely due to seasonal adjustment factors, as government education payroll employment usually declines by around 270,00 in June, and this month only fell by 220,000.
Stripping out government jobs and focusing on the private sector, payrolls rose by just 74,000, which brought down the 3-month average to 115,000.
Still, accounting for seasonal factors related to government employment, the labor market is growing above what is referred to as the “breakeven rate” – the level of job growth necessary to sustain the current unemployment rate. Economist Jed Kolko calculates a breakeven rate of around 80,000 to 90,000 jobs a month, which job growth is tracking against.
Industry Breakdown
The concentration of job growth in a few key industries – healthcare, restaurants, and (for this month at least) government – continues to be worth watching. The “diffusion index” fell to 49.6, meaning that more industries are contracting than expanding. Healthcare hiring remains robust, adding 58,600 jobs. Leisure and hospitality also continued its steady spurt of job growth, with 20,000 jobs gained.
The longer-term story is that service-sector employment continues to be the bright spot of the economy, while goods-producing sectors like manufacturing continue to struggle.
Wage Growth and Immigration
Wage growth held steady at 3.9% year-over-year for frontline (non-supervisory) workers. Hours worked ticked down rather sharply, by 0.3 hours per week. Wage growth according to other measures like Indeed tell a similar story: gains outpace inflation but are slowly trending towards 3.5% after remaining elevated for the duration of the post-pandemic recovery.
Another relieving indicator is that labor force participation held steady; many economists (including us at Appcast) were concerned lower immigration trends might shrink the talent pool and lead to less hiring. So far, that hasn’t occurred.
Yet, the overall labor force level declined again this month by 130,0000, following a sharp drop of 625,000 the previous month. This pushed the three-month average into negative territory, declining by 70,000. If this trend continues, it could result in lower employment growth as fewer workers are available to hire.
Recently, the White House has floated the idea of providing farm and hospitality workers with exceptions for deportations to prevent significant labor shortages in these key sectors.
Our colleague Julius Probst recently published a blog on the impacts of President Trump’s immigration policy on the labor market predicting lower immigration levels could blunt labor force growth over the next several years.
What does this mean for recruiters?
For recruiters in healthcare or hospitality, competition and hiring demand likely remains elevated. For those in goods sectors like retail, transportation or manufacturing, employment growth has cooled and so has competition for workers, shown by the continued downward trend in wages.
So, bottom line: The underlying story of a cooling labor market remains the case in this report, despite the strong headline number. The wonky adjustments for local government teachers are likely inflating job growth beyond its true level. That said, the bottom is not falling out and the feared expectations of tariff-related job losses have not (yet?) appeared.
